According to the Internal Revenue Service, more than 70 percent of the nation’s taxpayers received a tax refund averaging nearly $3,000 in 2017 and will get a similar amount for 2018. As Americans receive their refunds along with additional benefits coming from the Tax Cuts and Jobs Act passed in December, we have highlighted seven tips to help them use their money wisely.
“Tax season is the perfect time to hit the reset button on your finances,” said Ellen Dorian, President and Chief Operating Officer, “Your refund can help put you on the right path towards reaching your financial goals. Consider using it to pay off debts or creating an emergency fund.”
To help you make the most out of your money, we highlighted the following tips:
- Save for emergencies. More than 60 percent of Americans are not prepared for unexpected expenses. You can prepare by opening or adding to a savings account that serves as an “emergency fund.” Ideally, it should hold about three-to-six months of living expenses in case of sudden financial hardships like losing your job or having to replace your car. Our Kasasa Saver, paired with a free Kasasa Checking account, is a great way to save for short or long-term uses.
- Pay off debt. Pay down existing balances either by chipping away at loans with the highest interest rates or eliminating smaller debt first.
- Save for retirement, your child’s education or future health expenses. Open or increase contributions to a tax-deferred savings plan like a 401(k) or an IRA. Your bank can help set up an IRA, while a 401(k) is employer-sponsored.
- Pay down your mortgage or student loans. Make an extra payment on your mortgage or student loans each year to save money on interest while reducing the term of your loans. Be sure to inform your lender that your extra payments should be applied to principal, not interest.
- Invest safely with U.S. savings bonds or municipal bonds. The U.S. Treasury allows for savings bond to be purchased using your tax refund for as little as $50. Savings bonds earn interest for a maximum of 30 years.
- Invest in your current home. Use your refund to invest in home improvements that will pay you back in the long run by increasing the value of your home. This can include small, cost-effective upgrades like energy-efficient appliances that will pay off in both the short and long term – and with tax credits (as long as Congress continues to renew the program).
- Donate to charity. The benefit is two-fold: Giving to charity will make a difference in your community, and you can also claim the tax deduction, if you itemize.
We also stressed the importance of lower-income workers filing a tax return—even if their income is too low to trigger any federal tax liability—in order to potentially claim the Earned Income Tax Credit (EITC). Depending on a recipient’s income, marital status and number of children, the EITC can result in a refund of up to $6,318 to help them achieve financial goals.
Remember, our team is here to help you find financial solutions that make sense. Get in contact with any of our branch managers to determine how you can effectively utilize your tax returns.